SPY is still Long 03/17/12

The chart on SPY is still l,ong. Chart is attached below. I have not posted this chart in a while because there have been no changes from my Go Long post on SPY back in 12/23/11 I believe. SPY is the Exchange Traded Fund (ETF) for the S&P 500 and is a decent proxy for the market. SPY is now more heavily weighted with AAPL and some say when AAPL pauses and will pull back, so will the market. Others offer RSP as a better proxy for the market. RSP is an equal weighted S&P 500. Kind of like the US Congress vs the Senate on its representation of States in the Union. No commentary on politics here.

SPY is tearing up in a tight trading channel heading North. First signs of weakness will be a break in the channel; and then the push back up. Usually markets take a while to top, so I feel I have plenty of time. I am long on my 401K as well; but I do have hedges on.

I have seen a down signal on GLD as well as TLT which is a bond fund. Clearly the market is demonstrating strength and the bond funds are losing participation as money moves away towards equity. Real estate funds IYR, SPG have picked up. At the down signal; on GLD, I sold GLD Call spread. That means I sold a Call At-the-money and bought a Call Out-of-the-Money to reduce my risk exposure. It is the opposite of buying a Vertical Call spread. As GLD swings sideways and drops, the Call spread is worth less and less and I can buy it back for less than I sold it.. I am currently about 60% profitable on the Call spread – wish I had done more.

When I got the down signal on CAT and I sold my long Call option position, I should have done the same and sold a Call spread on CAT. I did not want to fight the long market direction and CAT and chose not to; but my technicals were correct and that too would have made money for no other reason than time decay on the ATM call option. Usually I like to sell the ATM call option as it has the most time value.

I learned options from taking a course with Optionetics in Detroit, MI with Tom Gentile himself as the teacher. He is an excellent teacher but back then, a lousy technical analyst. He was high on Elliott waves and gave 5 picks to the class of about 150, and all 5 went the wrong direction!!! I could not have done worse…but he taught the class real well, and I learned how to handle options to protect my investments, collect premium, as well as use vertical spreads for reduced risk, maximize gain. We also learned more complicated methods that I choose not to use. Enough on options. Market direction remains Long albeit a little overbought.